First HBOS short-seller revealed

A hedge fund that specialises in distressed debt and special situations has become the first to disclose a short position in HBOS, the bank whose shares are under pressure on the stock market this morning.

Harbinger Capital Partners revealed it has sold shares worth 3.29% of the value of HBOS under new rules issued by the Financial Services Authority which has taken unprecedented steps to shore up rights issues.

The shares had fallen as low 269.5p but by 11.45am were trading just below at 274.75p.

The FSA has ruled that traders who have shorted the stock - sold shares with a view to buying them back at a cheaper price to make a profit - in any company conducting a rights issue to disclose the position if it is worth more than 0.25% of the company.

Harbinger is the first to disclose a position in HBOS which has been the subject of a detailed investigation by the regulator following a 17% share price fall in March. The FSA, though, has failed to find any evidence of market abuse.

Philip Falcone, a former head of high yield trading for Barclays Capital, is the senior managing director of the Harbinger Capital Partners group of funds, which is part of Harbert Management Corporation based in Birmingham, Alabama.

HBOS has stressed that its cash call is underwritten by Dresdner Kleinwort and Morgan Stanley and that it is guaranteed to get its money. However, if the share price remains below the rights price there is little incentive for its share holders to participate in the cash call and suggests the underwriters will be left holding billions of pounds of HBOS stock.

Bradford & Bingley took the unprecedented step of repricing its rights issue when its shares skirted close to its price and it was forced to issue a profits warning.

The FSA's new rules have already forced out disclosures about positions in B&B. Odey Asset Management announced this morning that it has a short position worth 0.28% of the company.

A short position in AEA Technology was also announced by Henderson Global Investors this morning.

A handful of others were revealed on Friday when the rules first came into effect.